issued Sunday, June 28, 2026 · 6:30 p.m.
[LONDON] According to the Bank for International Settlements (BIS), global pressures from rising public debt to fiscal vulnerabilities and the sustainability of the artificial intelligence boom are increasing risks and highlighting the need for disciplined policy-making.
central bank umbrella group annual economic report The report, released on Sunday (June 28), warned of a complex set of vulnerabilities, including tight fiscal conditions, a prolonged supply shock and the risk of a return to persistently high inflation.
BIS said economic activity has remained resilient in recent months, but policymakers need to act decisively to maintain stability.
“To avoid overloading the global economy, policy measures must be mutually reinforcing. Ultimately, success will depend on a sound fiscal and financial base,” said Pablo Hernández Decos, general manager of the BIS.
This report highlights several key pressure points. Inflation is accelerating again, and the BIS warns that rising inflation expectations among households and businesses could become entrenched as supply disruptions become more frequent. “The main message we want to send is that we are prepared to act if the central bank determines that inflation expectations are fixed,” Dekos told reporters.
He said the recent ceasefire between the US and Iran in the Middle East and the reopening of the Strait of Hormuz was “good news” and meant it would take time for oil markets to “normalize”, but extreme scenarios could be avoided.
emergency message
BIS also noted uncertainty about whether the current surge in investment related to AI will be sustained. While AI has boosted confidence and supported growth through hopes of improved productivity, the bank warned that it was raising concerns about jobs and that supply bottlenecks and intense competition could lead to overinvestment similar to those seen in past boom-bust cycles.
For central banks, this raises fundamental questions about how the economy will function going forward, but Dekos said it would be “unwise” to say anything prescriptive about how central banks should respond at this point.
Financial vulnerabilities also remain an area of concern. Soaring asset valuations and signs of investor complacency have made core debt markets even more vulnerable, and financing the AI boom also appears to be increasingly reliant on debt and complex financing structures across the supply chain.
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At the same time, record high levels of public debt and sovereign bond markets are increasingly dominated by large, highly leveraged hedge funds, creating a “new link between sovereigns and financial stability” and increasing risk.
“The new link between fiscal and financial stability may mean more frequent and sharper declines in the value of government bonds,” said Frank Smets, acting director of the BIS Financial and Economics Department, adding that such fluctuations could quickly tighten financial conditions.
Dekos said the BIS’s message shows “urgency” in terms of the need to reduce debt levels in major countries. “The fact is that debt levels are high today, and they are financed through non-bank financial intermediaries.” BIS called on policymakers to prioritize price stability, ensure fiscal sustainability, and collaborate across the banking sector to strengthen oversight and pursue structural reforms.
“Policymakers must act now; any delay will only make the necessary adjustments more costly,” Dekos said. Reuters
